Healthcare is the Biggest PPI Component With Over 3 Times Energy's Weight

Mish

A look at what's driving the Producer Price Index (PPI) might surprise you. Energy is only 7th on the list.

PPI Percentage Weights 

I produced the above chart starting with a download of Producer Price Weights from the BLS.

The spreadsheet has over 1,500 items in 45 broad categories. I grouped any category with less than 1 percentage point weight into "other". 

PPI Components Weights List 

PPI Components List

Services

PPI Final Demand Top 6 Services

PPI Notes

  • Six of the top 10 PPI final demand components are services. 
  • Healthcare, Wholesale Trade, Retail Trade, Transportation, Professional, and Investment Services comprise 48.84% of the entire 45-category list of PPI components. 
  • Add in credit intermediation (#14) and Real Estate (#17) and the total is 52.27%.
  • Investment services, credit intermediation, and real estate services comprise 7.04% of the PPI vs 4.98% for fuels, related products, and power.

PPI vs CPI

Healthcare Services are 17.75% of the PPI but only 6.97% of the CPI. 

The Fed and the BLS underweight healthcare costs in the CPI because someone else is footing the bill (corporations or the government via Medicare, Medicaid, or a state- or local-government sponsored plan).

Anyone buying their own insurance will tell you 6.97% is a ridiculous assessment of their consumer spending.

The Producer Price Index Jumps a Greater Than Expected 1.3 Percent

Yesterday, I reported The Producer Price Index Jumps a Greater Than Expected 1.3 Percent. 

Here is the line item that caught my eye: Two-thirds of the January advance in prices for final demand can be traced to a 1.3-percent rise in the index for final demand services. 

Curiously, One-fourth of the January advance in the index for final demand services can be traced to a 9.4-percent rise in prices for portfolio management.

As Reported, Consumer Price Inflation Is Lower Than Expected Once Again

Not that many people believe this, but As Reported, Consumer Price Inflation Is Lower Than Expected Once Again.

Mish

Comments (18)
No. 1-8
PecuniaNonOlet
PecuniaNonOlet

So what happens to services when labor hopits $15/hr or goes up to whatever from 7.25? Healthcare doesnt surprise, each day boomers get older and sicker and require more medical help. I have a thesis that there wont be enough people in the healthcare system to take care of them all. The most depressing place in the universe is a nursing home. If you are a boomer, I encourage you to visit one so you know what you are in for later.

Greggg
Greggg

Both my dentist and my primary care physician are hanging on by a thread. They are definitely not the winners. I suspect the Pharmaceutical Industry is doing great though.

PostCambrian
PostCambrian

Just finished my taxes. My health insurance costs were 18% of AGI and my medical expenses were 9% of AGI.

numike
numike

“Disease is the biggest money maker in our economy.”
― John H. Tobe

Realist
Realist

I guess that's why my inflation rate is so low. Very low health care costs where I live.

Casual_Observer
Casual_Observer

The following industries provide zero productivity growth to the aggregate economy:

  • Healthcare
  • Investment services (F)
  • Credit services (F)
  • Real estate services (RE)
  • Insurance (I)

But increasingly more of our "economic growth" has made these industries a bigger chunk of the economy than what a healthy or productive nation requires. We really need prices to fall in order for healthy growth to resume but since there are derivatives on all things now, prices only temporarily fall even during a recession and spike right back up. Until there is major derivatives reform so that speculators are forced to take delivery of the end product, then we will just get meager productivity and growth. The economy is really caught in a Bermuda Triangle and has been since derivatives deregulation occurred in 2000-2002. True price discovery based on actual demand is a thing of the past because derivatives speculation makes it look like there is demand when there is none. As long as there is no effort made to disconnect the actual economy from the phantom economy that interferes with the real economy, then there will be no price discovery and only more inflation.

Casual_Observer
Casual_Observer

dunno_again
dunno_again

This reminds me of a conversation I had with the IT head of China's SEC about a decade ago in Beijing. I was selling capital markets' risk management software just after the GFC (a hot commodity at the time) and a party apparatchik strode into the room, announced he was the top man, and then started berating me about how America doesn't make anything and thus we are not a real economy.

I didn't expect to see such an unsophisticated understanding of the service economy on this board, but then it leans libertarian, and the only people who have less of a grasp of reality than communists are libertarians in my experience.

I always would like to know what the people who claim that the CPI is too low think the "real" rate of inflation is. Usually a simple rule of 72 makes their estimates hilariously wrong when somebody has been brave enough to stop whining about the Fed and actually give me a figure - I once heard 10% (milk coming out of nose alert) and then had the person model their own financial history against that headwind, with the predictably amusing results.


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